A More Affordable Chicago

March 21, 2019

Summary

Increase much-needed city funds for affordable housing, and begin to chip away at our shortfall of 120,000 affordable units. There are two ways in which we can do so: restore former levels of corporate funds by increasing resources by at least 90 percent and institute a graduated real estate transfer tax on high value properties.

Corporate funds for affordable housing

The City of Chicago spent just about three-tenths of one percent of its budget on affordable housing in 2017, or $24.5 million out of $8.3 billion. Tax increment financing revenue—local funds that get spent outside the normal budget process—contributed another $16.9 million in 2017 toward affordable housing. But even that represented less than three percent of the $660 million raised by TIF districts.

While all cities are struggling with a decline in federal support for affordable housing, there is more Chicago can and must do to support this need locally.

Recommendation: The city should restore, or surpass, former levels of corporate fund support for affordable housing. The last time the city had a stand-alone Department of Housing was 2008, at which point it received $32.3 million in corporate funds according to the Chicago Rehab Network. The new 2019 Department of Housing is budgeted to receive $4.3 million in corporate funds, an 87 percent reduction. Because the ARO in-lieu fees are a crucial source of funding to Chicago’s Low Income Housing Trust Fund, and because the Trust Fund provides vital units at much lower incomes than the ARO, it is critical that the city restore and ultimately exceed former levels of corporate support for affordable housing. An increase to account for inflation would require $35 million in corporate funds, roughly the same levels as ten years ago.

Graduated Real Estate Transfer Tax

Chicago has a real estate transfer tax of $5.25 per $500 of property value. This tax is not graduated, meaning someone who buys or sells a home for $150,000 pays the same rate as someone who buys or sells a home for $1.5 million. The current tax generates $160 million annually, a third of which goes to the Chicago Transit Authority.

In the Metropolitan Planning Council’s roadmap to a more equitable future, a document released in May 2018, MPC and the Center for Tax and Budget Accountability recommend a graduated real estate transfer tax to generate desperately needed funds for affordable housing.

Because the tax is pegged to property values, only the highest-value transactions would cost more. In most cases, the buyer and the seller would pay less than they do now.

The Chicago Coalition for the Homeless and other groups have proposed a plan to generate $150 million a year for affordable housing and services for some 80,000 homeless people. The plan calls for increasing the city’s real estate transfer tax on high-value property. An ordinance seeking to put this proposal on the Feb. 26 election ballot, as a referendum question, has been presented by Ald. Walter Burnett.

This is one of many versions of a proposed progressive real estate transfer tax that could get us over the finish line.

Recommendation: The city should establish a graduated real estate transfer tax, and dedicate the new resources it generates to affordable housing and services for the homeless.

Timeline

100 Day Actions

Establish task force to assess the two funding options and recommend paths forward

Mayoral announcement of restored or exceeded commitment to local funds for affordable housing and plan for referendum

Informed by recommendations, meet with Aldermen to craft/revise legislation and referendum language

First Term Goals

Additional Considerations

Why the time is right

For the first time in a decade, the city established a standalone Department of Housing to signal the importance of affordable housing to the city by elevating it to a cabinet level. A new 5-Year Housing Plan, a new department and a new commissioner will accomplish little new, however, without increasing the city’s financial contribution to affordable housing.

What it will take

Increased corporate funds simply require a higher allocation to housing in the city’s budget. This budget allocation is approved by City Council.

For a graduated real estate transfer tax, the City of Chicago would need referendum approval in order to make the proposed changes to the tax structure.

In both cases, an advisory group of affordable housing practitioners and policy advocates should be formed to work with the department in shaping the use of funds.

Alignment with other Initiatives and Priorities of City or Partners

The new Department of Housing needs a robust budget to achieve its goals and address the gap of 120,000 needed affordable units.

Other considerations

January 2020 will mark the one-year anniversary of re-establishing the Dept. of Housing. It would be a powerful statement for the Mayor to be able to announce that, one year after its reformation, the city has doubled down on its commitment to affordable housing by increasing its contribution by 87 percent over the previous year, and putting in motion an additional $150 million per year to address homelessness and the shortfall of 120,000 affordable units.

Shaping a more equitable, sustainable and prosperous greater Chicago region

For more than 80 years, the Metropolitan Planning Council (MPC) has made the Chicago region a better place to live and work by partnering with businesses, communities and governments to address the area's toughest planning and development challenges. MPC works to solve today's urgent problems while consistently thinking ahead to prepare the region for the needs of tomorrow. Read more about our work »